Where income generated from the transfer of forest trees from the transfer of forest trees along with forest land falls under the business income, the subject matter of taxation of the transfer income tax following the transfer of forest land, the criteria for determining whether the income from the transfer of forest trees falls under the business income, and the subject matter of taxation of the transfer income tax, if there is no growing activity to produce forest trees even if the forest trees were transferred along with the forest land, or business feasibility is not recognized even if the growing activity is

Article 19 (1) 1 and (3) of the former Income Tax Act (Amended by Act No. 9897, Dec. 31, 2009); Article 29 (current Deletion) and Article 51 (8) of the former Enforcement Decree of the Income Tax Act (Amended by Presidential Decree No. 22034, Feb. 18, 2010);

In the case of a clan in the Gimnam Village of Korea (Law Firm LLC, Attorney Choi Yong-hwan, Counsel for the defendant-appellant)

The Director of the National Tax Service

Daejeon High Court Decision 2012Nu1158 decided September 20, 2012

The appeal is dismissed. The costs of appeal are assessed against the plaintiff.

The grounds of appeal are examined.

1. Article 19(1) of the former Income Tax Act (amended by Act No. 9897 of Dec. 31, 2009) provides for “income generated from forestry” in subparagraph 1, while listing the income subject to business income. Meanwhile, the main text of Article 29 of the former Enforcement Decree of the Income Tax Act (amended by Presidential Decree No. 22034 of Feb. 18, 2010; hereinafter “Enforcement Decree of the Income Tax Act”) delegated by Article 19(3) provides that “The scope of businesses under each subparagraph of Article 19 of the Act shall be based on the Korean Standard Industrial Classification unless otherwise provided in this Decree with respect to the scope of businesses under each subparagraph of Article 19 of the Act.” The Korean Standard Industrial Classification provides that “Any growing business (020) which is one of the three items of the detailed classification of the forestry (020) shall be defined as planting trees for the production of trees, industrial activities to be protected, and any income from the transfer of forest land shall not be included in the transfer of forest land.”

In light of the language, purport, structure, etc. of these regulations, in cases where forest trees are transferred along with forest land, it is reasonable to view that, in principle, income generated from the transfer of forest trees constitutes business income, only the remaining income, excluding that generated from the transfer of forest trees, is subject to taxation of capital gains tax following the transfer of forest land. In such cases, whether income generated from the transfer of forest trees constitutes business income ought to be determined in accordance with ordinary social norms by taking into account whether activities conducted by the forest for the production of forest are for profit, the substance, scale, period, mode, etc. of the forest, to the extent that business activities can be seen as business activities, and whether the forest trees were continuously and repeatedly conducted, even if the forest trees were transferred along with forest land, barring any special circumstance to deem that the forest trees was a separate transaction object from the forest land, the income generated from the transfer of forest shall be subject to taxation of capital gains tax, and whether the forest land and its land are separate from the forest land should be objectively determined by comprehensively taking into account the transaction purpose of the parties, details of the surrounding forest land, etc.

2. After citing the judgment of the court of first instance, the court below acknowledged the facts as indicated in its holding. The court below determined that the Plaintiff’s disposition of this case was lawful on the ground that the Plaintiff transferred the forest land of this case under the premise that the Plaintiff was transferred the entire forest of this case, not by transferring the forest of this case, on the financial statements of 2009, after purchasing the forest of this case, after dividing the forest of this case into a house site, and transferring the sale price in this case to investors, in light of the following: (a) it is difficult to deem that the Plaintiff and the stock company recognized the forest of this case as an independent sale object separate from the forest of this case; (b) there was no authorization of the forest management plan for operating the forestry of this case or any registration of business related to registration; (c) there was no other forest of this case’s business; and (d) the type, receipt, or quantity of the forest of this case’s forest of this case’s case’s forest of this case’s forest of this case’s case’s transfer as part of this case’s forest of this case’s transfer.

In light of the above legal principles and records, the above determination by the court below is just, and contrary to the allegations in the grounds of appeal, there were no errors by misapprehending the legal principles as to interpretation of legal act, probative value of disposal documents,

3. Therefore, the appeal is dismissed, and the costs of appeal are assessed against the losing party. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Min Il-young (Presiding Justice)